GURBUX GIANCHAND MOTWANI VS S.C. PRASAD AND OTHERS
1999 P T D 202
[225 I T R 134]
[Bombay High Court (India)]
Before M. B. Shah, C. J. and P. S. Patankar, J
GURBUX GIANCHAND MOTWANI
Versus
S.C. PRASAD and others
Writ Petition No. 1156 of 1994, decided on 05/06/1996.
Income-tax---
----Purchase of immovable property by Central Government---Agreement for purchase of flat---Valuation Officer reporting that declared rate not grossly understated---Appropriate authority not stating which comparative sale instances relied on---Five out of eight comparable instances showing lower price than declared---Admission by appropriate authority that built up area was as given in Valuation Officer's Report---No under valuation---Pre emptive purchase order not valid---Interest---Interest payable to vendor for period of delay---Indian Income Tax Act, 1961, S.269-UD.
The petitioner entered into an agreement for purchase of a flat admeasuring 1,347 square feet on the first floor of a building for a consideration of Rs.38 lakhs, and paid Rs.3.8 lakhs as earnest money. The petitioner and the vendors filed Form No. 37-1 as required under Chapter XXC of the Income Tax Act, 1961. The property was inspected by the Valuation Officer who valued the property at a discounted consideration of Rs.35,19,845, which worked out to Rs.2,613 per square foot and made an endorsement on his report that the rate was not grossly understated. However, pursuant to an endorsement of the appropriate authority on the report to the effect that the terrace and the balance floor space index were not accounted for, the appropriate authority passed an order of pre-emptive purchase under section 269-UD of the Act, relying upon 3 comparable sale instances. The petitioner filed a writ petition. While admitting the petition, the Court directed that if the petitioner deposited the balance consideration in the Court, the appropriate authority was to give the petitioner a fresh hearing and pass a fresh order. Thereupon, the appropriate authority, after hearing the petitioner and the vendors, passed an order holding that the fair market value of the property was Rs.46 lakhs on the date of the agreement as against the disclosed consideration of Rs.38 lakhs and, therefore, the difference was much more than 15 per cent. this time relying on 5 fresh comparable sale instances. On a writ petition:
Held, allowing the petition, (i) that in the second order the appropriate authority had clarified that though there was a terrace above, it was for common use, and not exclusive to the subject property that the built up area was the same as given in the report of the Valuation Officer. Once this was admitted, it was apparent that the initiation of proceedings under Chapter XX-C was without any basis. Moreover, there was no question of any balance floor space index because the petitioner had purchased only a flat and not a bungalow.
(ii) That the appropriate authority had not stated. which sale instance it had relied upon for holding that the value of the property on the date of the agreement to sell would be Rs.46 lakhs as against the disclosed consideration of Rs.38 lakhs. It was not known whether the appropriate authority had determined the fair market value of the property at Rs.46 lakhs by averaging the rate of all the eight sale instances or by referring to any one particular sale instance. Moreover, considering the fact that the discounted rate per square foot of the property under purchase came to Rs.2,613 and that out of eight sale instances, the price was more than that of the five sale instances referred to and relied upon by the appropriate authority, it could not be inferred that the petitioner had purchased the property by undervaluing the consideration or that the apparent consideration was less by more than 15 per cent. of the fair market value of the property under purchase.
(iii) That, therefore, the order of pre-emptive purchase was without application of mind and required to be set aside.
Held also, that the petitioner was to pay the vendors interest at the rate of 20 per cent. per annum on the balance purchase price within one month from the date of the judgment.
Rajalakshmi Narayanan v. Margaret Kathleen Gandhi (1993) 210 ITR 681 (SC) ref.
Dr. D.Y. Chandrachud with S.P. Kanuga for Petitioner.
R. Ashokan with M.I. Sethna and H.D. Rathod for Respondents. Nos 1 to 4.
A.I. Talegaonkar, instructed by Bhai Shankar Kanga and Girdharlal for Respondents Nos.5 and 6.
JUDGMENT
M. B. SHAH, C. J.---The petitioner, who is the purchaser of flat No.2 situate on the first floor of the building called "Garden Homes", Khar, Bombay, has challenged the order of compulsory purchase, dated March 25, 1994, passed by the appropriate authority, Bombay. By the impugned order, the appropriate authority arrived at the conclusion that the fair market value of the subject property is Rs.46 lakhs on the date of the agreement (June 22, 1992) as against the disclosed consideration of Rs.38 lakhs and, therefore, the difference is much more than 15 per cent.
The aforesaid order is passed with regard to a residential flat, being flat No.2, admeasuring 1,347 square feet on the first floor of "Garden Homes", Khar, Bombay. It is the contention of the petitioner that he was the owner of another flat situated at Worti and that in June, 1992, he entered into an agreement for the sale of the said flat for a consideration of Rs.45 lakhs and in view of the provisions of section 54 of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), the petitioner was required to invest the sale proceeds in another residential flat to obtain tax benefits. Hence, on June 2, 1992, the petitioner entered into an agreement for the purchase of the flat in question from respondents Nos.5 and 6 for a consideration of Rs.38 lakhs. The petitioner paid Rs.3.80 lakhs as earnest money. As per the agreement, the balance was required to be paid with a period of 15 days froth the date of receipt of the N.O.C. from the Income-tax Authorities under Chapter XX-C of the Act. On June 23, 1992, the petitioner and respondents Nos.5 and 6 filled in Form No.37-I. It is the contention of the petitioner that on June 23, 1992, the property was inspected by the Valuation Officer and in the valuation report he deducted an amount of Rs.65,151 as discount for 120 days which would be the time to be taken by the appropriate authority for passing an order under Chapter XX-C and for paying the consideration. He also deducted Rs.1.5 lakhs as the price of the garage; Rs.60,000 as the price of fixtures and Rs.5,000 as transfer fees; thus, according to the Valuation Officer the discounted amount of consideration was Rs.35,19,849 for the flat admeasuring 1,347 square feet which works out at the rate of Rs.2,613 per square foot. The valuation report is produced on record at Exh. "D" to the petition. The valuation Officer has made the following endorsement on the valuation report:
"7.7. Having regard to sale instance given on page 6 and also considering some appreciation, I am of the opinion that the declared rate of Rs.2,613 per sq. ft. of the subject bungalow is not grossly understated."
The basis for initiation of the proceedings under Chapter XX-C was because of the following endorsement made on behalf of the appropriate authority below the aforesaid report:
"What about terrace? It is not accounted for in B.U.A. rate calculation. Any balance F.S.I.?"
In view of the aforesaid endorsement, the appropriate authority passed an order, dated August 27, 1992, for compulsory purchase of the aforesaid flat under Chapter XX-C of the Act. The petitioner challenged the said order by filing Writ Petition No.2096 of 1992.
By an interim order dated September 29,1992, the Division Bench of this Court restrained respondents Nos. l and 2 from tendering the amount payable under section 296-UF(2) till the petition was heard for admission. Thereafter, on September 30, 1992, the order was modified to the extent that the amount payable under section 269-UF(2) was directed to be deposited with the prothonotary and senior master on or before October 6, 1992, and the prothonotary and senior master was directed to invest the said amount in a notionalised bank.
On January 31, 1994, the aforesaid Writ Petition No.2096 of 1992 was admitted. The Court directed the petitioner to deposit in the Court Rs.38 lakhs, less Rs.3.80 lakhs which has been paid to the vendor as earnest money. It was also directed that if the amount is deposited as aforesaid, respondents Nos. l and 2 shall give a hearing to the petitioner and pass a fresh order on or before March 31, 1994, provided the petitioner Cooperates.
In view of the aforesaid order passed by this Court, on February 28, 1994, a show-cause notice was issued by the appropriate authority which is produced on record and after hearing the petitioner and the vendor, the impugned order, dated March 25, 1994, was passed. That order was challenged by filing the present petition on April 21, 1994. Subsequently, on July 27, 1994, the earlier Writ Petition No.2096 of 1992, which had challenged the order of compulsory purchase, dated August 27, 1992, was withdrawn.
At the time of hearing of this petition, learned counsel for the petitioner vehemently submitted that the impugned order passed by the appropriate authority is arbitrary and that the sale instances relied upon by it clearly established that there is no under valuation or, in any case it is not more than 15 per cent of the fair market value arrived at by the appropriate authority. In the present case, the appropriate authority has, while passing the first order, relied on the following three sale instances:
Analysis of the Comparable three instances relied upon
by the valuation Officer, appropriate authority.
| Case No. and Date | Details of property | Value (Rs.) | Built up area sq. ft. | Rate per sq. ft. | Rate per sq. ft. less 15 per cent. |
| 7808 26-7-1991 | Bungalow No.8 Golden Acres, Raju Park, Juhu | 41,50,000.00 40,69,993.00 (discounted) | 1,519 | 2,679.00 | 2,277.00 |
| 7871 21-8-1991 | Bangalow No.4 Golden Beach Bungalow Society Ruia Park | 58,50,000.00 57,45,244.00 (discounted) | 2,620 | 2,183.00 | 1,855.00 |
| 8145 10-9-1991 | Bungalow No7, Silver Sand, Juhu Tara Rd | 48000,000.0047,75,558.00(discounted) | 2,136 | 2,236.00 | 1,900,00 |
Subsequently, the appropriate authority has not relied upon the aforesaid sale instances, but has relied upon the following five sale instances:
| Case No. and Date | Chronological serial number | Name of building sq. ft. | Built up area rate | Market rate (Rs.) | Less 15 per cent. (Rs.) |
| 9118 30-3-1992 | III | Flat No.501, 5thShangrilla Khar(Actually it is at Bandra) | 1,166 | 3,109 | 2,642 |
| 8482 16-12-1991 | II | 601 and 602 Mangal Mitra, 16th Road, "Khar 6thFloor | 504 | 3,610 | 3,068 |
| 8323 | I | Half flat, 7th F1.702 Link-way,Khar | 486 | 3,039 | 2,583 |
| 9436 26-5-1992 | V | Flat No. 10, 2nd F1. Nugget, Khar | 867 | 3,353 | 2,850 |
| 9244/95 | IV | Flat No. 51, Chitrakoot, 14th Road Khar. | 1,380 | 4,218 | 3,585 |
At this stage, we would further note that in the impugned order, in paragraph 7, the competent authority has clarified as under:
"The second confusion is regarding the terrace. During the course of our inspection, we found that there was a terrace above, but the same is not exclusive to the subject property. This is for common use. The reference to the two terraces, which was subsequently rectified as one terrace in the order, dated September 24/25, 1992, is inadvertent which occurred in the order because of the description given in column No.7 of Form No.37-1 where the description of the property is given as bungalow No.2 with terrace. While passing the first order, perhaps the number of the bungalow, viz., 2 was wrongly attached with terrace, thus, describing the property as bungalow with terraces. Subsequently, this was rectified as one terrace. In fact, as stated earlier, though there is terrace above but this is not attached with the subject property exclusively. It seems that while inspecting the property at the time of passing the first order, dated August 27, 1992, the portion of balcony was taken s terrace. Be that as it may, on our inspection, we found that the subject property consists of three bed rooms, one kitchen, one drawing-cum-dining room and one closed balcony, two toilets (one attached) and a servant toilet. The built up area is the same as given in the report of the Valuation Officer. With this preliminary clarifications, we may now deal with the arguments of the learned representatives. "
Further, it is also clarified that the terrace is not accounted for in the built-up area for calculation of the rate.
Once this aspect is aspect is admitted by the appropriate authority, in our view, it was apparent that the initiation of proceedings under Chapter XX-C was without any basis. In view of the aforesaid clarification, it is clear that the purchaser is not entitled to the exclusive use of the terrace. There is no question of any balance F.S.I. because the petitioner has purchased only a flat and not a bunglow.
In the impugned order, the appropriate authority has straightaway stated that looking to all the aspects of the case, it was of the view that the fair market value of the subject property is Rs.46 lakhs on the date of the agreement, given a market rate of Rs.3,415 per square foot as against the disclosed consideration of Rs.38,00,000. For arriving at this calculation, the appropriate authority has not stated upon which sale instance it has relied for holding that the value of the property on the date of the agreement to sell would be Rs.46 lakhs as against the disclosed consideration of Rs.38 lakhs. However, learned counsel for the respondents submitted that the appropriate authority has relied upon the sale instances which he referred to in the show-cause notice. It is true that in the show-cause notice, the appropriate authority to all the aforesaid eight sale instances. But in the show-cause notice, it is nowhere mentioned that the appropriate authority is relying upon a particular sale instance for arriving at a conclusion that the fair market value of the property under question would be Rs.46 lakhs. We do not know whether the appropriate authority has determined the fair market value of the property at Rs.46 lakhs by averaging the rate of all the eight sale instances or by referring to any one particular sale instance.
In any set of circumstances, considering the aforesaid eight sale instances and the fact that the discounted rate per square foot of the property under purchase comes to Rs.2,613, and that out of eight sale instances, the price is more than that of the five sale instances referred to and relied upon by the appropriate authority, it cannot be inferred that the petitioner has purchased the property by undervaluing the consideration or that the apparent consideration is less than 15 per cent. of the fair market value of the property under purchase.
We further note that with regard to the first three sale instances on the basis of which the first order was passed, they clearly indicate that the apparent consideration paid by the petitioner was the fair market rate per square foot. We would also note that the sale instances were with regard to bungalows while the petitioner has purchased a flat.
As against this, learned, counsel for the respondents referred to and relied upon the sale instances, dated April 24, 1992, which indicates that flat No.51 in Chitrakoot, Khar, Bombay, admeasuring 1,380 square feet, was sold at the rate of Rs.4,218 per square foot. However, we fail to appreciate this contention because the appropriate authority has not specifically relied upon the said sale instance for arriving at the conclusion that the fair market value of the subject property would be Rs.46 lakhs on the basis of the said sale instance.
In this view of the matter, the impugned order is without application of mind and, therefore, arbitrary and hence is required to be set aside.
However, at this stage, learned counsel for respondents Nos.5 and 6 raised a contention that because of the interim order passed by this Court, respondents Nos.5 and 6 were deprived of their money for a period of 21 months. With regard to calculation of 21 months, there si no dispute between the parties. It is also an admitted fact that respondents Nos.5 and 6 withdrew the amount deposited by the petitioner on the basis of the order passed by this Court on January 31, 1994. Learned counsel fog respondents Nos.5 and 6, therefore, submitted that the petitioner should be directed to pay interest on the balance purchase price with interest at the rate of 20 per cent per annum and for this purpose he relied upon the following paragraph from the decision rendered by the Supreme Court in the case of Rajalakshmi Narayanan v. Margaret Kathleen Gandhi (1993) 201 ITR 681 (at pare 683):
"We may clarify that whether interest should be paid to the owner of an immovable property who has entered into an agreement to sell the same which cannot be completed by reason of .an order of purchase under section 269-UD of the Income Tax Act and at what rate, will have to be decided in the facts and circumstances of each case. All that can be observed be way of a general principle is that where such a seller has raised no objection or obstruction either to the purchase of his property by an order under section 296-UD or to the completion to the agreement of sale entered into by him but is unable to get the purchase price by reason of the said order and the stay order or orders passed by a Court, interest at an appropriate rate can, if equity so requires, be paid to him. "
Considering the aforesaid decision, learned counsel for the petitioner states that the petitioner should pay interest to the vendor at the rate which may be determined by this Court.
In the result, the petition is allowed. The impugned order, dated March 25, 1994 (Exh. "H" to the petition), is quahsed and set aside. The appropriate authority is directed to hand over possession of the flat in question to the petitioner within a period of 15 days from today. The petitioner is directed to pay to respondents. Nos. 5 and 6 interest at the rate of 20 per cent. per annum on the balance purchase price of Rs.34,20,000, for a period of 21 months within a period of one month from today. It is clarified that it would be open to the appropriate authority to withdraw the amount deposited by them in this Court with interest accrued thereon.
Learned counsel for respondents Nos.5 and 6 states that respondents Nos.5 and would execute the necessary documents for the sale of the said flat in favour of the petitioner.
Rule is made absolute with no order as to costs.
Issuance of certified copy of this judgment is expedited.
M.B.A./1665/FCRule made absolute.